The central demographic variables are population size and population growth, the more people there are in the economy, the greater the demand for housing. But this is an oversimplification. It is necessary to consider the size of the family, the age composition of the family, the number of first and second children, net migration (immigration minus emigration), the formation of non-family households, the number of two-family households, mortality rates, divorce rates. and marriages. In housing economics, the elementary unit of analysis is not the individual, as it is in standard partial equilibrium models. Rather, it is households that demand housing services: typically one household per house. The size and demographic composition of households is variable and not entirely exogenous.

Income is also an important determinant. Empirical measures of the income elasticity of demand in North America range between 0.5 and 0.9 (De Leeuw 1971). If the elasticity of permanent income is measured, the results are slightly higher (Kain and Quigley 1975) because transitory income varies from year to year and between individuals, so positive transitory income will tend to cancel out negative transitory income. Many housing economists use permanent income instead of annual income because of the high cost of purchasing real estate. For many people, real estate will be the most expensive item they will purchase.

The price of housing is also an important factor. The price elasticity of demand for housing services in North America is estimated at negative 0.7 by Polinsky and Ellwood (1979), and negative 0.9 by Maisel, Burnham, and Austin (1971).

The housing demand of an individual household can be modeled with standard utility/choice theory. A utility function "Utility (economics)"), such as , can be constructed, in which the household's utility is a function of various goods and services (). This will be subject to a budget constraint such as , where is the disposable income of the household and is the prices of different goods and services. Equality indicates that money spent on all goods and services should be equal to disposable income. Because this is not realistic, the model must be adjusted to allow for borrowing and savings. A measure of wealth, lifetime income, or permanent income is required. The model must also be adjusted to account for real estate heterogeneity. This can be done by deconstructing the utility function. If housing services () are separated into their constituent components (), the utility function can be rewritten as . By varying the price of housing services () and solving for optimal utility points, the household's demand schedule for housing services can be constructed. Market demand is calculated by adding all individual household demands.

The central demographic variables are population size and population growth, the more people there are in the economy, the greater the demand for housing. But this is an oversimplification. It is necessary to consider the size of the family, the age composition of the family, the number of first and second children, net migration (immigration minus emigration), the formation of non-family households, the number of two-family households, mortality rates, divorce rates. and marriages. In housing economics, the elementary unit of analysis is not the individual, as it is in standard partial equilibrium models. Rather, it is households that demand housing services: typically one household per house. The size and demographic composition of households is variable and not entirely exogenous.

Income is also an important determinant. Empirical measures of the income elasticity of demand in North America range between 0.5 and 0.9 (De Leeuw 1971). If the elasticity of permanent income is measured, the results are slightly higher (Kain and Quigley 1975) because transitory income varies from year to year and between individuals, so positive transitory income will tend to cancel out negative transitory income. Many housing economists use permanent income instead of annual income because of the high cost of purchasing real estate. For many people, real estate will be the most expensive item they will purchase.

The price of housing is also an important factor. The price elasticity of demand for housing services in North America is estimated at negative 0.7 by Polinsky and Ellwood (1979), and negative 0.9 by Maisel, Burnham, and Austin (1971).

The housing demand of an individual household can be modeled with standard utility/choice theory. A utility function "Utility (economics)"), such as , can be constructed, in which the household's utility is a function of various goods and services (). This will be subject to a budget constraint such as , where is the disposable income of the household and is the prices of different goods and services. Equality indicates that money spent on all goods and services should be equal to disposable income. Because this is not realistic, the model must be adjusted to allow for borrowing and savings. A measure of wealth, lifetime income, or permanent income is required. The model must also be adjusted to account for real estate heterogeneity. This can be done by deconstructing the utility function. If housing services () are separated into their constituent components (), the utility function can be rewritten as . By varying the price of housing services () and solving for optimal utility points, the household's demand schedule for housing services can be constructed. Market demand is calculated by adding all individual household demands.